DAILY DIGEST

Published 4:00 am, Wednesday, April 20, 2005

SEC censures KPMG for flawed audits

KPMG, one of the nation's top accounting firms, was censured Tuesday by the Securities and Exchange Commission, which accused the firm of helping executives at Xerox Corp. to manipulate and distort the company's financial statements from 1997 through 2000 by issuing audits stating that Xerox's reports were consistent with accounting rules when they were not.

KPMG did not admit wrongdoing but agreed to pay more than $22 million to settle the case, including a $10 million civil penalty, repayment of the $9.8 million it earned by auditing Xerox's books during the period, and $2.7 million in interest.

Millennial Habits May Soon Bring An End to Passwords New Study ShowsVeuer

Cats Ride Robotic Stuffed CrabJukin Media

Regulators said that accounting fraud began at Xerox in 1997, and allowed the company to overstate its financial results by $1.5 billion over four years. Xerox shares lost 80 percent of their value after the fraud was disclosed in 2000.

KPMG was Xerox's auditor for 40 years, regulators said. The enduring relationship contributed to a lax approach to Xerox's bookkeeping, they said, as well as a willingness on the part of the firm to remove a partner from the Xerox audit team who had raised concerns about the company's accounting to its management.

The SEC said KPMG allowed Xerox to manipulate its accounting practices to close a $3 billion gap between its actual results and those it reported publicly from 1997 through 2000.

New York Times

High court tightens investor lawsuit rules

Washington -- The Supreme Court made it harder Tuesday for investors and pension funds to sue and win back the money they lost after the bursting of the stock market bubble of the late 1990s, ruling that anti-fraud laws are not "insurance against market losses."

The justices used a failed lawsuit against a small San Diego pharmaceutical company to issue a warning against open-ended lawsuits claiming stock fraud.

A plunge in a stock's price does not show there has been fraud, even if investors were lured to buy the stock by a company's inflated claims, the justices said.

The 9-0 ruling reversed a more lenient standard set by the U.S. Circuit Court of Appeals in San Francisco. That ruling allowed investors to sue based on the claim that a company's overly optimistic statements had inflated its stock price.